Employee identification overview
An Employer Identification Number (or «EIN«, Sometimes called Federal Tax Identification Number) is a nine-digit number assigned by the Internal Revenue Service (IRS). EINs are used by employers, sole proprietors, corporations, partnerships, associations, non-profit associations, trusts, deceased estates, government agencies, certain individuals, and other business entities.
You are required to obtain an EIN if you do one or more of the following steps:
- Forming a partnership or partnership “C” or “S” (in this case, the EIN serves essentially the same purpose as a social security number for a sole proprietorship)
- Pay wages to one or more employees
- File special tax or pension returns
- A sole proprietorship without employees, pension plans, or special taxes doesn’t need an EIN. A sole proprietorship can use their social security number for tax, self-employment, and other tax purposes.
What happens if I use domestic help in my home?
If you employ domestic employees, including housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee, you will likely have to pay taxes on that person. Also, generally speaking, you will not have to pay any employment tax for using an independent contractor or others who provide your services who are not your employees. Learn more about payroll taxes on the IRS website or speak with a qualified business attorney who specializes in taxes.
Importance of an EIN
Getting an EIN should be at the top of your list of things to do to start your small business. Until an EIN is obtained, many important business functions will be delayed. The most important of these features is being able to use the Electronic Federal Tax Payment System (EFTPS) and submitting election and return forms to the IRS.
EIN Application
There are three main ways to apply for an EIN for your small business: online, by phone (800)829-4933, or by mail. If you want to save time on the phone or a postage stamp, online is the most convenient way to go. If the IRS is able to validate the information you enter, an EIN is issued immediately. Mail is the slowest option, taking about four weeks from the date the IRS receives your application.
IRS Resources
For more detailed information on how to determine if you should get an EIN, see the IRS publication Understanding Your EIN[PDF]. To obtain an EIN, you must complete IRS Form SS-4. It is a good idea to apply for an EIN before you open a business so that it is available when the first taxes are due. Most banks will require an EIN to open a corporate or partnership bank account.
Additional Resources